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5 Types of Budgeting Money Methods

There are so many personal finance programs and books on the market, trying to decide where to begin can make your head spin. Besides the myriad of options on the store bookshelves and online sites, there are dozens of popular, national programs that can cost hundreds of dollars. I’ve seen people spend over $100 to $150 on such programs and upon completion ask the question, “okay, how do I get started.” I find it unbelievable to spend that much money and time on a program and still not know how to get started.

Most of these books, programs and seminars focus on the much larger picture of Financial Planning and wealth building which are great resources to pursue after you get your spending under control, paid off all your debt, live within your means and have money left over to invest. To get started in the world of personal finance, most people just need a simple budgeting program to help them get started.

Despite all the options available, getting started with a budgeting process can be fairly simple. There are just a few categories of budgeting tools available. I’ll give a brief description of each one and you can decide what’s best for you – or read my next blog on “How to select the best budgeting tool for you.” A good budgeting coach can also work with you to provide solid advice on what’s best for your budgeting needs and match your skills to what’s available on the market.

Budgeting Money Method #1: Pencil, paper and calculator
Certainly the oldest method around, it works fine but has it’s drawbacks. Access to the budget forms is the easy part. You can either create some simple forms on paper that you’re comfortable with or you can search for the forms online that you can download for free or very inexpensively. That’s the easy part.

The downside of the pencil and paper method, even with assistance of a calculator, is that the user must know the basic financial calculations. Even if you are savvy in the mathematics, there is the issue of lack of speed, accuracy and repeatability. Making changes is difficult at best and each month the process and amount of time needs to be repeated. With the amount of effort required, most people simply give up.

The pencil and paper method is good, however, for first time budgeters that need to keep track of your daily spend. Keep a piece of paper in your wallet or purse and write down everything you buy, even if it’s on credit card or via check. Doing so will enable first time budgeters to establish a baseline of where their money is going. (Cost: approx $0)

Budgeting Money Method #2: Computer Spreadsheet such as MS Excel
Most computers have some type of computer spreadsheet program such as Microsoft Excel or Apple Numbers installed. Such a spreadsheet program allows you to create an electronic form (called a spreadsheet), embed all the financial calculations and then simply enter your financial data. The computer does the calculations dynamically and you can see your results interactively on the screen.

There are several advantages of using a computer spreadsheet:
• Time savings increases each month
• Accuracy of the calculations
• Repeatability month after month

The downside, If you are not an expert at MS Excel or the finance calculations, it will be difficult to create your own budgeting forms from scratch. However, there are some excellent MS Excel budgeting forms on the market that are “ready made” for first time budgeters. Some of these MS Excel forms will even generate pie or bar charts to display easy to understand. Do some research online and find one that meets your functional requirements and meets your budget. Make sure your computer has the MS Excel program installed on your computer. (Cost: less than $20 for the forms; MS Excel extra if not already installed on your computer).

Budgeting Money Method #3: Computer programs such as Quicken
My comments on computer programs such as Quicken are relative to their capabilities as budgeting tools, not financial planning tools. Many of these programs have the advantage as broad financial planning tools that can be used for everything from budgeting to wealth management and even bill pay, but usually lack good budgeting capabilities.

My definition of a budgeting is a set of learned behaviors that help you manage your expenses relative to your income and provide you with a plan to get out of debt and reach your financial goals.

Many of the computer programs simply look at your past spending habits to create your budget. So if you had a budgeting problem in the past, it is simply carried over to succeeding months. The computer program does not correct any spending or behavior problem that led to poor budgeting.

The disadvantages with these commercial financial planning computer programs include:
• Expensive. For Quicken you will shell out $40 for just the Starter Edition, $60 for the Deluxe and $90 for Premier.
• Complexity. Again, most are designed for much more than budgeting and can be difficult to use, especially for first time budgeters.
• Time incurred in learning and using these programs can be lengthy for simple budgeting requirements
• Don’t teach good budgeting techniques

If you are going to invest that kind of money and time, seek out a budgeting program that actually teaches you how to budget!

Budgeting Money Method #4: Online budgeting programs such as mint or Mvelopes
Convenient and free budgeting tools are popping up everywhere on the internet and as smartphone apps. The accessibility is hard to beat but which one do you choose? Are online budgeting tools even a good idea from a security standpoint?

Let’s start with the last question first. You need to be aware and be comfortable with the idea that you are sending your financial data back and forth over the internet. This is very different than online banking. When you perform electronic funds transfer or electronic bill pay through your bank, you have all the protection that your bank has deployed to protect the information. That may not be the case with a non-banking institution set up with online budgeting programs. Just do your research and be mindful of security issues.

If you are okay with the security issues, then you probably did your research and selected an online budgeting tool that you’re comfortable with. That’s the highest priority in selecting these tools.

The advantage of these tools is the ubiquity of having your information on various media when you need it: On your smartphone when you’re shopping, on your laptop when you’re at the library or coffee shop, or on your home PC when you’re at home. Virtually anywhere you have browser access to the internet you can access your budget to see if you are on track.

Budgeting Money Method #5: Behavior-based Budgeting Method
There’s a new method I’m proposing which can include any of the 4 methods above, but incorporates a new way of thinking or behavior. If you apply my definition of budgeting: a set of learned behaviors that help you manage your expenses relative to your income and provide you with a plan to get out of debt and reach your financial goals, then any of the 4 methods above will work because you changed your behavior!

Make a decision today to place budgeting high on your priority list, change your behavior, and start to see your financial goals realized.

Michael T Kastler is a Budgeting Coach and author of the personal finance book, “Get a GRASP on Your Budget and Your Cash” and multiple budgeting worksheets. His budgeting money tips blog that helps individuals become debt free and meet financial goals can be found at Budgeting Money Tips.